Mi Duo, Bi Xindan, Wang Tao

As the core products of the petrochemical industry, benzene, toluene, and xylene are all monocyclic aromatic hydrocarbons. China is the world's largest aromatics producer and consumer, hence occupying an important position in the global market. With the rapid growth of China's market demand, there will be three new development trends in the aromatics industry in the future.

Production analysis and forecast

1. Benzene

China's benzene production was under the influence of COVID-19 in the year of 2020, and the operating rate was over 70% throughout the whole year. The newly launched capacity was 2.3 million t/a, and the output of these new lines was 1.45 million to 1.5 million tons. In 2020, the total capacity of benzene was 16.385 million t/a, and the output was 12.717 million tons. The production of major benzene manufacturers in 2020 is shown in Table 1.

Chart 1 shows that China’s benzene capacity has been increasing year by year from 2016 to 2020. In 2020, the total domestic production capacity reached 16.385 million t/a, an increase of 37.8% from 11.89 million t/a in 2016, up by 4.495 million t/a. The peak of the growth appeared in 2019-2021, with the growth rate significantly higher than that of 2016-2018.

Chart 1 China’s benzene capacity trend, 2016-2021

China's benzene capacity expansion entered a peak period in 2019 and 2020, representing by the launching of the aromatics lines of Hengli Petrochemical and Zhejiang Petrochemical. It is estimated that by 2021, the benzene capacity increase will be 2.78 million t/a, a year-on-year increase of 17.0%. The large-scale plants planned to be put into production include Zhejiang Petrochemical Phase II, Gulei Petrochemical and Shenghong Refining & Chemical, of which the capacities of Zhejiang Petrochemical Phase II and Shenghong Refining & Chemical are both of more than 1 million t/a. See Table 2 for newly added benzene plants in 2021.

2. Toluene 

In 2020, China had 6 more toluene units, with capacity expanded by 2.85 million t/a. By the end of 2020, China’s toluene capacity increased 67.84% from 2016 to 17.047 million t/a. Among them, in the newly-added refining and chemical integration equipment of Zhejiang Petrochemical Co., Ltd. and Dongying Weilian Chemical Co., Ltd., toluene is used as an intermediate product to directly disproportionate to produce benzene and xylene, which hence has limited impact on the toluene market. The new capacities of Zhongke (Guangdong) Refinery & Petrochemical, Sinopec Yanshan Petrochemical Company and PetroChina Daqing Petrochemical Company are for captive use with only a small amount for sale. Sinochem Quanzhou PC’s 900 000 t/a toluene products are all for sale. The major Chinese petroleum based toluene enterprises in 2020 are shown in Table 3.

It is expected that after 2021, China’s toluene production capacity will continue to increase at an annual rate of about 20% averagely. It is estimated that during 2021 to 2025, the newly added capacity will reach 7.773 million t/a, but only 1.623 million t/a would be for sale, and the remaining 6.15 million t/a will be used for downstream para-xylene production. As a result, the increase in the market supply is relatively limited. See Table 4 for the status of toluene expansion in China from 2021 to 2025.

3. Xylene

Ortho-xylene 

In 2020, China's o-xylene capacity stabilized at 1.697 million t/a, with an output of 929 000 tons. The capacities are mainly located in East China and South China, with East China taking 34.8%, South China 33.6%, and Northeast China 23.2%. Due to the weakening of international demand on the heels of the epidemic and the impact of low crude oil prices, a large number of low-priced imports hit the domestic market. It is expected that the capacity of o-xylene will not change much in 2021. Table 5 shows China’s o-xylene capacities in 2020.

Paraxylene (PX) 

China’s PX production capacity in 2020 was 25.54 million t/a, a year-on-year increase of 13.3%. PX entered the launching peak in 2019 and gained a total of 11.33 million t/a of capacity through 2019 to 2020, an increase of 79.65% compared to 2018. In 2020, domestic PX output was 24.505 million tons, a year-on-year increase of 39.15%. With the substantial increase in domestic capacity, the production has also risen rapidly. China’s PX capacity and output situation from 2016 to 2020 are shown in Chart 2. The average operating rate of domestic PX lines in 2020 was 80.44%, a five-year high. A large number of PX lines that were put into production in 2019 have realized commercial production, and the operating rate in 2020 went up by 15.23% year-on-year. Since 2019, teapot refineries started to enter the PX sector, and their proportion in total PX capacity continued to increase. In 2020, the ratio of private PX capacities reached 61.47%, an increase of 5.13% year-on-year.

Chart 2 China’s PX capacity and production changes, 2016-2020

In 2021 and thereafter, China will have another 27.09 million t/a PX capacities. It is estimated that this figure will reach 52.63 million t/a in 2025, an increase of 106.07% over 2020. See Table 6 for those new capacities in China.

Market analysis and forecast

In 2020, China's benzene production was 12.717 million tons, imports 2.098 million tons, exports 3 000 tons, apparent consumption 14.812 million tons, with import dependence at 14.1%. The downstream application sectors are mainly styrene, caprolactam, aniline, phenol and adipic acid. Among them, styrene is the largest consumer of benzene, accounting for 43%, followed by caprolactam, accounting for 17%. Chart 3 shows the downstream consumption structure of domestic benzene in 2020.

Chart 3 China’s benzene downstream consumption structure in 2020

Chart 4 shows the toluene production since 2014. It can be seen that since 2018, toluene production has been increasing year by year. In 2020, the output of toluene reached 8.518 million tons, with the net import of 377 000 tons, and the apparent consumption 8.895 million tons. Affected by the outbreak of COVID-19, the activity of the domestic toluene market and downstream demand both declined in 2020. In the first quarter, on the outbreak of COVID-19 at home and abroad, the market was almost in a stagnant state, demand continued to shrink, and the supply remained basically normal.In the second quarter, as the market returned to normal, the demand improved slowly; and in the second half of the year, the demand became better than the first half of the year, and market consumption accelerated.

Chart 4 China’s toluene production, 2014-2020

In 2020, the domestic production of o-xylene was 929 000 tons, with the total import of 187 000 tons and the apparent consumption 1.116 million tons. Phthalic anhydride is the main downstream of o-xylene. The prices of phthalic anhydride were falling in the whole year of 2020 due to the COVID-19 epidemic. In the first quarter, o-phthalic anhydride continued its loss started in 2019. However, in April, o-phthalic anhydride turned losses into profits, and kept such momentum. The high operating rate of phthalic anhydride has prompted a steady increase in domestic consumption of o-xylene.

In a nutshell, the domestic PX market in 2020 showed the characteristics of "three highs and five lows". The "three highs" are high capacity, high output, and high social inventories; the "five lows" are record low prices, record low profits, low loads, low imports, and low import dependence. In 2020, due to the concentrated release of large-scale PX capacities and the spread of the pandemic, the polyester (PTA) and even the terminal market was influenced. The PTA demand was dragged down, and imports impacted the market. The domestic supply totaled at 30 707 200 tons, a year-on-year increase of 13.69%; total demand was 29 406 600 tons, a year-on-year increase of 10.19%; the apparent consumption was 33 409 300 tons, a year-on-year increase of 12.76%. The overall supply during the year was long. The balance of domestic PX supply and demand from 2016 to 2020 is shown in Table 7.

Driven by the rapid development of the polyester industry, and supported by the continuous expansion of PTA's capacity, PX has its apparent consumption steadily increased, with a five-year compound annual growth rate of 9.37%. Due to the concentrated launching of large-scale refining and chemical integration projects, the growth in output has exceeded the growth in imports, and China's dependence on PX imports has been significantly eased. In 2020, PX import dependence was 41.25%, down by 9.31%, with the import volume at 13.861 million tons, down 7.2% year-on-year; the average import price at US$583.16/ton, down 35.84% year-on-year. The import costs have been significantly reduced.

Import & export analysis and forecast

The import and export of China's main aromatic products in 2020 are shown in Table 8.

In 2020, the total imports of benzene were 2.098 million tons, up 8.19% year-on-year; the total exports of benzene were 3 thousand tons, down 91.34% year-on-year. In 2020, domestic toluene imports totaled 452 000 tons, a year-on-year increase of 36.5%, and the average import price decreased by 35.91% year-on-year; toluene exports were 75 000 tons, a year-on-year increase of 102.7%. From 2016 to 2019, China's imports of o-xylene showed a continuous downward trend, from 290 000 tons in 2016 to 84 000 tons in 2019. However, in 2020, the imports of o-xylene rebounded sharply, increasing to 187 000 tons as China became the growth point afterthe outbreak of the epidemic globally. China’s toluene market once became the high point of the global market, and the arbitrage window opened, stimulating a large number of importsenter the domestic market. Under low crude prices, the profitability of the main downstream o-phthalic anhydride industry increased sharply, promoting the utilizations of the o-phthalic anhydride lines, which has led to an increase in the demand for o-xylene and thus the imports. In 2020, the total import volume of PX reached 13.861 million tons, a year-on-year decrease of 7.46%, and the monthly import volumes were mostly lower than the level of the same period in 2019.

In 2020, China's largest benzene import origin is South Korea, accounting for 49.5% of total imports; followed by Thailand, accounting for 12.9%; and Brunei, accounting for 7.3%. In 2020, China's largest toluene import origin is still South Korea, accounting for 43.8% of total imports; followed by Japan, 12.8%; and CN Taiwan, 12.2%. In 2020, China's o-xylene importswere mainly from Asian countries, of which India, accounting for 55.1% of total imports, ranked No.1; followed by South Korea, accounting for 18.7%; and Singapore, accounting for 9.1%. The main sources of imports of benzene, toluene and o-xylene in 2020 are shown in Table 9.

PX import origins are concentrated in Asia. The sources of China’s PX imports in 2020 are shown in Chart 5.

Chart 5 China’s PX origins in 2020

In 2020, the main trade modes of China's imports of benzene, o-xylene and p-xylene are shown in Table 10. It can be seen from the table that in 2020, China's trade of benzene, o-xylene and p-xylene was mainly through general trade.

At present, China’s aromatics market demand is growing rapidly, and the self-sufficiency rate has increased; the development pattern of the industry has become more open, and investment diversification has accelerated. With the gradual advancement of 10 million tons’ large-scale refining and chemical integration projects of private enterprises and foreign-funded large-scale ethylene projects, the influence and power of private enterprises will continue to increase, and the supply pattern will gradually evolve from unipolarity (state-owned enterprises) to bipolarity (state-owned and private). The proportion of million-ton aromatics capacities will also increase significantly. The large-scale level of domestic oil refining secondary and tertiary processing equipment and aromatics downstream equipment also increased significantly. The scale of newly built plants will mostly be at the international leading level, and some will be the largest in the world. In the future, the aromatics industry will have three following trends:

First, capacity expansion enters the peak season, and the proportion of private enterprises will increase significantly. Private enterprises will enter the aromatics field, and some, like Zhejiang Petrochemical, Hengli Petrochemical, Shenghong Refining and Yulong Petrochemical will become the main force in a new round of large-scale development.

Second, the whole industry chain will develop together, with obvious synergistic competitive advantages. New large-scale aromatics complexes will be built, supported by large-scale oil refining projects at the same time. The whole industry chain supporting enterprises represented by Hengli Group and Rongsheng Group will rise. Due to the large scale of the equipment, advanced technology, and convenient transportation along the coastal area, they will have obvious competitive advantages, and the downstream industrial chain will have a lot of sales expenses reduced. We will see obvious late development advantages in terms of industrial chain integration and industrial clustering configuration. Market competition will change from product competition to industrial chain competition.

Third, overcapacity in the four major downstream industries will worsen, and the supply of benzene tends to be ample. In the next few years, the domestic downstream of benzene, including styrene, cyclohexanone (caprolactam, adipic acid), phenol and aniline will all have new capacities launching. The capacities of downstream derivatives of benzene will be fully surplus, the actual operating rate will decrease, and the growth rate of demand for benzene will slow down significantly.